Manufacturing achieves second consecutive year of growth

The state of manufacturing in Australia is looking very positive, with December marking the sector's 15th consecutive month of expanding or stable conditions, according to research from the Australian Industry (Ai) Group. What can we learn from these figures, and where is manufacturing likely to go in 2018?

The Performance of Manufacturing Index (PMI)

The PMI ranges from 0 to 100, with a normal manufacturing level marked as 50. Any results above 50 indicate expansion, and the closer it gets to 100 the greater the growth is. The Ai Group releases these figures each month, with the average for 2017 standing at 56.0.

November alone saw a jump of 6.2 points to 57.3, and although it then dropped by 1.1 in December, the figures remain solidly above 50 and indicate that Australia's manufacturing industry is going strong.

Food and beverages remains the largest manufacturing sub-sector, achieving its highest monthly result in December since April 2016 (63.2). Six of the eight sub-sectors saw growth in December, with only wood and paper as well as textiles, clothing and furniture in contraction.

Weathering the close of auto assembly

These results are especially impressive considering 2017 saw the end the automotive industry in Australia with the closure of GM Holden Ltd's plant in South Australia. The rising value of the Australian dollar in Q3 and its subsequent impact on exports also had the potential to negatively affect the manufacturing sector, however businesses managed to weather these storms.

Business Insider Australia reports that by the end of the year demand had increased for equipment, machinery and other inputs. Procurement, agriculture, renewable energy projects and the local leisure market were also contributing to these positive figures.

What's in store for 2018?

A key theme of the past year was the impact that rising input costs was having on profit margins and expansion. Manufacturers from all sub-sectors reported spending more on electricity and gas. For food and beverages, the cost of raw inputs (such as milk and butter) are also reducing margins.

Businesses operating in the sector will look to 2018 to influence developments in the National Energy Guarantee proposal by the Turnbull government and introduce other measures to help reduce the rising cost of inputs.

Manufacturing plays a huge role in the Australian economy, and it's vital that businesses continue to expand. In order to this, they need positive cash flow.

Classic Funding Group offers several solutions for growth, either debtor finance, where businesses can take out an advance of up to 85 percent against their outstanding invoices or finance of new or used equipment.